Avoiding forex fees has never been simpler (Image: Getty)
With summer in full swing, scores of Britons are looking to jet set across the globe as they plan holidays abroad.
But with international waters come those sneaky hidden forex fees and pesky tourist taxes travellers aren’t even aware of.
Summer travel invariably leads to holidaymakers unwittingly losing hundreds of pounds, whether it’s to luggage fees or to overseas charges and costly payment mistakes. In fact, some retailers and providers add up to £5 extra per overseas transaction.
Research shows this cost is so high that British travellers lost close to £2.5million in foreign exchange fees just last year.
Whether you’re using debit cards or withdrawing cash during your holiday this summer, here’s what you need to know to sidestep those extra charges, This is Money reports.
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There are a few easy ways to avoid forex fees while travelling this summer (Image: Getty)
Debit cards might not be the best idea
Your debit cards might actually not be offering the best rate available, as many standard debit and credit cards frequently levy a ‘non-sterling transaction fees’ on foreign currency transactions.
This fee is usually as high as 2.5 to 3 per cent of the purchase amount, making the usage of your standard debit and credit cards a pricey option.
Thankfully, more and more banks are now offering fee-free debit cards that allow customers to spend abroad as freely as they would at home. Monzo, Chase, Starling, First Direct, as well as giants like Lloyds and Nationwide all offer cards with no overseas transaction fees.
But there’s one catch: Fee-free accounts — such as those from Monzo, Starling, and Chase — typically use fixed card scheme exchange rates that are set once daily. However, because the real FX market fluctuates throughout the day, these fixed rates must include a sizeable margin to guard against adverse market movements. As a result, consumers might not always receive the most favourable rate.
The solution? Using specialist travel debit cards from Wise, Revolut or Currensea. With these cards, customers can expect to spend even lesser as they remove bank fees and can prove to be more than 0.5 per cent cheaper than fee-free cards and over 3 per cent cheaper than the high street banks’ debit card alternatives.
Do not exchange money at the airport
While it may seem like the easiest, most hassle-free thing to do — avoid exchanging your money at the airport, as it’s one of the most expensive ways to get foreign currency.
The reason for this is that exchange rates at the airport are usually extremely poor. Andrew advises: “Never buy or sell your currency at the airport. You’ll lose around an extra £10 for every £100 you spend – just don’t do it unless it’s an absolute emergency.”
AJ Bell’s Laith Khalaf adds: “Effectively buying money at the airport is a hefty tax on your holiday for not planning ahead. The same principle applies to getting travel money from the post office, which is another popular choice. Individual post offices will usually have their own currency rates but if you order online beforehand, you’ll almost certainly get a better deal.”
Around 27 per cent of travellers tend to exchange the bulk of their cash at the airport, despite receiving the worst rates and encountering high fees — an expenditure that can be avoided simply with some forward planning.
Withdrawing cash on vacation comes with a hefty fee attached (Image: Getty)
Prepaid cards aren’t perfect
Similar to debit cards, prepaid travel cards — offered by the likes of Sainsbury’s, Travelex, Mastercard, and even the Post Office — operate on a chip and pin system. Travellers are expected to load their card up with foreign currency before commencing their holiday, thereby locking in a set exchange rate.
While these cards definitely have their set of robust benefits, namely providing holidaymakers with a set travel budget from the get-go, along with locking in a set exchange rate which ensures a different rate isn’t applied on every spend — they also have their drawbacks.
If all the money loaded on the card isn’t spent during your holiday, travellers will then be faced with the costly conundrum of withdrawing the remaining amount in cash, which will invariably come with a high withdrawal fee. For many others, the remaining funds in the card will simply be forgotten upon return.
On average, travellers using prepaid cards tend to return from trips with £89 remaining on their cards. Close to half of those who have school-aged children return with over £100 on prepaid cards, with the average leftover sum sitting at a hefty £109.
Avoid withdrawing small amounts of cash
Some providers can tack on as much as £5 per cash withdrawal transaction while abroad — making it an expensive way to spend. Those multiple small transactions can really add up during the course of your trip.
Therefore, it’s better to withdraw a larger amount of cash just once at the beginning of your trip and create a daily budget for yourself. This way, for those whose providers do charge a fee, the cost will not be as severe.
Local currency is your best friend
As a rule of thumb, travellers should never pay in pounds sterling abroad — even if the option is on the table.
Andrew Hagger from personal finance website MoneyComms shares: “If you pay in GBP this allows the overseas retailer or ATM to use an inferior local exchange rate which can prove way more expensive than the normal Visa or MasterCard exchange rates – this is known as Dynamic Currency Conversion.”
So whether it’s shopping or paying for a meal at a restaurant — holidaymakers should always choose to pay in the country’s local currency to avoid extra charges.